Chinese developers turn to securitization market

Chinese developers such as China Vanke and Country Garden are increasingly turning to the securitization market as an alternative fundraising channel as the onshore bond market remains mostly inaccessible.

Property companies are in particular stepping up the securitization of receivables from property sales, providing them with funds to develop other projects.

The securities took off when Chinese regulators made it harder for developers to sell onshore corporate bonds late last year in a bid to help cool an overheating real estate market.

The issuing of such products more than tripled in the first seven months of this year from a year ago, according to data by China Securities Research.

The China Securities Regulatory Commission did not respond to requests for comment.

More than 11 Chinese developers have issued or announced plans this year to issue securities backed by sales receivables, including China Vanke, Greentown China and State-owned Beijing Capital Land, up from around six last year.

Developers typically record revenue in their books 12 to 24 months after contracted sales, when they actually transfer the property ownership to the buyers and pocket the proceeds. The asset-backed securities allow them to cash in on those receivables early.

"Chinese policies often change. If you rely on a simple channel, [then] once policy changes, it will affect our cashflow, so we have to explore other channels," said a source of Greentown, which issued 1.6 billion yuan (1.18 million) worth of securities this month, in reference to the crackdown on debt. The source requested anonymity because he was not authorized to speak to media.

Beijing Capital said that the securities provided a cheaper financing option for the company. Vanke said it considered the securities to be low cost.

Rates of the securities issued in the last two years were around 5 to 7 percent, slightly higher than onshore corporate bonds. The securities usually have short maturities of 2 to 4 years, and range in size from 1 to 5 billion yuan.

As China pushes to reduce excessive debt in the economy, the country's fledgling securitization markets have seen a surge of activity, with cash-starved banks, local governments and private companies converting assets into cash.